Compliance, Revenue, Customer Service: How Two Credit Unions Made One Choice and Got All Three

By Charles Shanley

Economic and regulatory challenges impact credit unions of all sizes—from Missouri’s Mazuma Credit Union, serving more than 52,000 members, to the much smaller Allentown Federal Credit Union in Pennsylvania, with less than 8,000 members. While their situations are distinctly different, they shared concerns over declining revenue, maintaining compliance and providing valuable service. They found a common solution with John M. Floyd & Associates.

Mazuma had a relatively successful in-house overdraft program up until the passage of Regulation E, which required members to opt-in for overdraft coverage on electronic transactions. According to Mazuma CEO Brandon Michaels, “With the implementation of Reg E, our overdraft income was cut by more than half.”

Michaels realized that the steep revenue decline could mean a reduction in staff, as well as reduced deposit rates and fewer member services. “We knew we had to do something to offset the lost income,” he said.

Mazuma’s overdraft solution did not provide coverage for overdrafts incurred by debit card or ATM transactions. So when credit union met with JMFA in January 2011, they saw an opportunity to expand their member services while potentially increasing income.

“JMFA Overdraft Privilege® helped us provide our members with access to their funds through more delivery channels,” Michaels said. “While some may not support an overdraft privilege program because they feel it is a catalyst for poor member choices, we felt that we had an obligation to provide our members with access to their money, and then to help them avoid overusing the ‘privilege’ through educational resources.”

According to Michaels, any reservations the credit union had about implementing an overdraft program were alleviated by JMFA’s fully disclosed, fully communicated approach.

There were also reservations early on at Allentown Federal Credit Union. CEO Barry Weiner had concerns about remaining well-capitalized given the declining economy, as well as ongoing concerns regarding NCUA assessments.

Weiner was skeptical about offering an overdraft program. “I didn’t see the value of allowing someone to overdraw his or her account,” he said. But as the economy worsened, Weiner saw that some members continued to have difficulty making ends meet. “With people living paycheck to paycheck, it occurred to me that we needed to provide a safety net to give these members access to the funds they needed and help them avoid paying additional merchant penalty fees,” he said.

So when the decision was made to implement an overdraft program in 2005, Weiner contacted JMFA based on the company’s reputation for providing a comprehensive, compliant program.

As a smaller credit union, Allentown didn’t have the manpower to devote to implementing a new overdraft program and still keep up with the day-to-day needs of their members. JMFA’s implementation team freed up the staff to continue providing members with the best possible service. “JMFA’s team was extremely helpful and delivered on everything they had promised,” said Weiner, echoing Michaels’ experience at Mazuma.

While Mazuma initially planned to keep its in-house software for reporting charge-offs and recoveries, it discovered that JMFA’s Privilege Manager CRM® software provides better tracking. “Having this program makes it much easier to track the fees and principal in our charge-off recoveries,” Michaels said.

With its original overdraft program, Mazuma was earning more than $150,000 a month in non-interest income, which declined sharply when Reg E restrictions were put in place, falling to $68,000 a month. Since implementing JMFA OVERDRAFT PRIVILEGE®, it has rebounded dramatically, growing to well over $400,000 a month. And with JMFA’s input on best practices regarding Reg E’s opt-in requirements, more members are opting in.

At Allentown, CEO Weiner has also seen impressive revenue results from JMFA Overdraft Privilege®. “I thought we did well with income before JMFA,” he said. “But I didn’t expect to see so much earning improvement as a result of this program.”

The management teams of both credit unions are relying on JMFA’s compliance expertise. “The resources and services provided by JMFA have improved employee training, which has been instrumental in helping members understand how to better manage their funds,” Michaels explained.

“JMFA provided all of the education and member communications materials we need,” added Weiner. “The fact that their programs are guaranteed compliant translates into real relief.”

While he admits being a bit skeptical early on, Weiner has been extremely pleased with the outcome. “My advice is to just keep it simple. Follow JMFA’s advice and you can’t go wrong.”

Michaels shares that sentiment, saying, “When we selected JMFA, we did so based on their reputation for providing successful revenue results and their 100-percent compliance guarantee. Going forward, I have unwavering confidence that JMFA will help Mazuma Credit Union maintain both.”

Charles Shanley is executive vice president of John M. Floyd & Associates, a leader in profitability and performance improvement consulting. To read more success stories, go to www.jmfa.com/casestudies.

 

Strategic Link is the NWCUA’s wholly-owned service corporation, using the power of aggregation to provide the Association’s member credit unions with exclusive high-quality, competitively-priced products and discounted services. Contact Director of Strategic Partnerships Craig Reed today to find out how Strategic Link can help your credit union save money while meeting its goals in 2013 and beyond: creed@nwcua.org.

Posted in Compliance.